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China and Central Asia, CU Issue 33, May 19, 2009

China’s growing involvement in Central Asia, and particularly Kazakhstan, is set to be one of the most significant trends of the next few years. China’s booming economy, notwithstanding the recession, makes the lure of the Caspian region’s energy wealth and its developing markets more and more attractive.

This is not a new development, of course – Beijing has been cultivating relationships in Central Asia for centuries, and since the fall of the USSR it has advanced cautiously into the post-Soviet space. But in recent years, China’s thirst for oil and gas has spearheaded the country’s economic and, increasingly, political penetration of Central Asia.

In mid-April Kazakh President Nursultan Nazarbayev travelledto Beijing and signed a range of deals with his Chinese counterpart Hu Jintao (People’s Daily, April 17). The China National Petroleum Company took the majority of shares in MangistauMunaiGaz, Kazakhstan’s fourth-largest oil company with reserves of 500 million barrels, in exchange for a $10 billion credit line to Astana, whose economy has been severely weakened by the global financial crisis. The loan will be divided between supporting Kazakhstan’s energy sector and helping the country diversify its economy away from its dependence on oil and gas.

Some analysts and Kazakh opposition politicians have warnedthat by going cap-in-hand to China in exchange for financial assistance, the country has sacrificed its economic and national security (Eurasianet, April 20). This pessimistic view is supported by the Kazakhstan-China oil pipeline, which commits 20 million tons of Kazakh oil a year to China, starting in 2011, and growing cooperation between the two countries on uranium supplies to Chinese nuclear power plants.

Fears over Chinese economic control are not limited to Kazakhstan. In 2005 the US Congress blocked China from taking over the oil company Unocal, and there have been repeated fears that Chinese software could be used to take over Western strategic infrastructure. Russia, too, is quietly concerned at Beijing’s growing clout in Central Asia. All of this is despite China’s efforts to reassure the world of its ‘peaceful rise’ and its unwillingness to cultivate geostrategic ‘spheres of influence’.

Nonetheless Beijing’s influence in Central Asia will continue to grow, mainly due to its economy. Although it has also been badly shaken by the world recession, it has weathered the storm far better, in relative terms, than many other neighbouring states. As Russia’s economy contracts and the cost of maintaining its energy monopoly in the Caspian region increases, China is well placed to intervene and secure strategic assets. The north-western region of Xinjiang (East Turkestan) is increasingly being seen as an economic hub, partly to quell the lingering separatist rebellion there.

As well as using its financial muscle to secure stakes in the region’s energy sector – including the Kazakhstan-China oil pipeline, exploration of energy assets in Uzbekistan and a pipeline from Turkmenistan – Chinese economic influence also operates from a bottom-up approach, as Chinese entrepreneurs and businessmen set up in Central Asia and Chinese goods flood into the region’s markets. This is already beginning to cause discontent amongst some local businesses, as a Eurasianet dispatchfrom Kyrgyzstan in March 2009 illustrated (Eurasianet, March 18).

Whatever their merchant classes think, the Central Asian governments are welcoming China’s growing confidence for a number of reasons. Firstly, the simple economic statistics. Beijing is willing and able to supply huge amounts of credit and loans at a time when almost no other government can. For governments with limited revenue, the offer of several billion dollars is impossible to resist, even if it does mean selling off a few energy companies.

Secondly, this financial assistance is not linked to any demands for improvements in democracy and human rights, as it is when the West makes offers. China is, as it has repeatedly demonstrated from Sudan to Myanmar, unconcerned with the character of the regimes it does business with. The EU seems to have realised this with regard to Turkmenistan, where it has swallowed its revulsion over the country’s miserable human rights record in order to retain the possibility of the country’s gas market, where China has been recently making inroads.

Thirdly, China offers a useful counterweight to Russia. For the Central Asian states, having two regional superpowers competing for their oil and gas is obviously far more attractive than having to put up with a Russian monopoly, as has been the case. A network of pipelines between Central Asia and China is gradually taking shape, and Russia appears to be realising that China is not just a useful partner for keeping the West out of Central Asia – it is also a competitor. However, as European energy growth slows, Russia too needs alternative markets for its oil and gas, and China has managed to secure preferential treatment there as well. A pipeline from Angara in Siberia to Dauqing commits 15 million tons of Russian oil a year to China from 2011, and, analyst Stephen Blank notes, the total price for this oil (once the loans that China provided are included) is estimated at between $11.40 and $22 a barrel, an absurdly low price, especially given the state of the Russian economy (Central Asia-Caucasus Analyst, April 22).

Fourthly, the issue of security. The Central Asian governments, with the possible exception of Kazakhstan, have weak militaries and face a number of security threats, even if these threats are often overstated. China has a strong vested interest in preventing insecurity in the region, particularly since the Xinjiang insurgency appears to have strengthened and gained an Islamist tinge. The resurgence of Islamist movements in Central Asia, emboldened by chaos in Afghanistan, is something that Beijing (and Moscow) cannot accept.

Russian military support to Central Asia is clearly not new, but China has also taken an active interest recently. In April it pledged $1.5 million to Tajikistan’s military, the latest in a series of financial aid packages for the region’s armed forces (Eurasianet, May 4). For the Central Asian governments, equipment and training from the Peoples’ Liberation Army is another welcome balance to the supplies of outdated Soviet hardware which is sometimes offloaded by Moscow.

Security cooperation is most apparent in the Shanghai Cooperation Organisation. Sometimes described, in slightly breathless terms, as a counterweight to NATO, the reality is rather more mundane. It allows the Central Asian states, Russia, and China to come together and cooperate on security issues, the only forum in which they can do so. It helps Russia and China reassure each other on their respective military equipment and also acts as something of an arms fair for the Central Asian states.

From China’s point of view, security and geopolitics are secondary. Although concerned about the US presence in Central Asia, Russia’s continued influence and the negligible size of the American forces provide some reassurance. Far more important is the region’s energy wealth. China’s appetite will continue to grow voraciously and the presence of so much oil, gas and uranium on its western edge is undeniably tempting. Where this hunger will lead in ten or twenty years is impossible to say, but it is certain that China’s influence in Central Asia will change the region dramatically.

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